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Surviving and thriving in lean times

It will take OECD countries another 2.7 years to reach the pre-crisis level of economic output, according to the calculations of the International Monetary Fund (IMF). That is on top of the 5 years that have already passed since the beginning of the financial crisis.

So hard times are set to continue. However, some gambling operators are growing even in these difficult times. What strategies are they adopting to survive during these lean times?

The question is especially pertinent to gambling firms operating in Europe. Aside from Germany and some Scandinavian countries, disposable income of European households deteriorated in 2011 and will continue to do so until 2013.

William Hill, the British betting giant increased revenues in 2011, both in retail and online. William Hill Online (WHO) increased its active players from 1.34m to 1.40m, an increase of 5%. It increased its yield per player from £187 to £228, an increase of 22%, quite a feat considering the steep decline of disposable income in the UK. However, the number of new customers decreased from 808,000 to 790,000 in 2011 and the acquisition cost increased by 43%, from £75 to £108, in line with the increase of the online marketing budget, from £75m to £108m, a 40% increase.

Therefore, WHO made two bets, which it both won. The first bet was that new clients would spend more than their cost of acquisition and the second was that the other clients would increase their spend per capita. How did it achieve this?

WHO expanded the methods by which its customers can place bets, investing in mobile sports book and mobile gaming channels. It also innovated a range of its products and broadened in-play betting. For its efforts it can boast a +519% mobile gross win. Another key component to its 2011 success is its strategy to cross promote between its retail arm and its online business and transform its sports bettors into casino, poker and bingo players. The word that defines WHO’s approach is innovation.

Innovation also explains IG Index’s performance. The spread betting firm’s 3Q results show that global revenue increased by 1.5% despite revenue per client declining by 3%. In order to offset the declining spend of clients, IG Index increased the number of its active clients by 4.6%. This strategy is particularly evident in continental Europe, IG Index’s second largest market after the UK. Spend per client in Europe decreased by almost 18% but the number of active clients increased by 26.7%, with the end result that revenue increased by 4.2% for the quarter.

Contrary to WHO, IG Index did not acquire customers by increasing marketing spend but by investing in its technological platforms. One such platform is Insight, a platform that allows customers to access (at no cost) a wide range of information to help them make a judgement call on their trading. It also automated dealing and payment processes, helping to save costs.

Where WHO and IG Index share strategies is offering customers access through mobile applications. IG rolled out apps for iPhone/iPad, Android, Windows Phone 7 and Blackberry. For the first six months of 2011/2012 financial year, 16% of IG’s revenue came from mobile transactions.

Of course, technological innovation is not limited to the big operators. If anything, smaller firms can be nimbler and more innovative. Advant Games, a small Finnish company that offers services to gambling operators just rolled out a product called TiltCtrl. In poker going “on tilt” refers to players playing very aggressively and without consideration for the cards (usually after a bad beat or frustration at losing a hand). It inevitably involves the player losing a large amount of money in a short space of time, which in turn usually leads players to abandon the website to play with a competitor. So what was a short-term gain for the operator in some additional rake becomes a long-term loss of a player. TiltCtrl is a tool that enables operators to identify and prevent tilt in online poker and thereby help retention in a market with high customer turnover.

Some operators, however, attempt to protect their markets by other means. Codere decided to combat its competitors by using lawyers. With the excuse that online operators targeting Spain are conducting unfair business practices, it has taken a number of online gambling operators to court. In March 2012 it won a case against Sportingbet and the court forced the online operator to shut down its Miapuesta.es and Miapuesta.com websites. The court ruling was delivered despite the previous Socialist government’s assurances that unlicensed online operators can continue their business until Spain’s gambling regulator started issuing licenses. In spite of the success in court, Codere’s strategy will have a short lifespan as the Spanish online market will open up to competition in any case.

A more valuable approach would be to start emulating the successful strategies adopted by gambling operators in competitive markets.

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